Opinion: Bitcoin ETFs likely wouldn’t be bearish for crypto but they might not be right for you

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There’s no bitcoin ETF — but. However stress is constructing on the U.S. Securities and Change Fee, with no fewer than 9 requests to create such ETFs already filed with company. The latest was from Cathie Wooden, founder and CEO of Ark Make investments. Her agency proposes to create the ARK 21Shares Bitcoin ETF.

Contrarians are apprehensive {that a} bitcoin exchange-traded fund can be bearish for the cryptocurrency. They need to fear about different issues.

It’s comprehensible why contrarians can be involved about this spate of filings to create bitcoin ETFs. It sometimes displays excessive bullishness when there may be excessive demand for even one new ETF, a lot much less 9, and contrarians interpret such an excessive to be bearish. For instance, current information that brokerage Robinhood Markets
HOOD,

will go public had some contrarians questioning if this was “the end of the meme trade.”

Whereas actually there are occasions when a market high coincided with widespread enthusiasm, there are many different instances the place it didn’t. One such instance was supplied to me by Claude Erb, a former commodities portfolio supervisor at TCW Group. In an interview, he identified that the November 2004 launch of the SPDR Gold Belief
GLD,
-0.07%,
which is maybe most analogous to those new bitcoin ETFs, got here early in a long-term and bullish marketplace for gold. (See chart beneath.)

This doesn’t imply the potential launch of those new bitcoin ETFs will usher in an equally lengthy bull marketplace for the cryptocurrency. However GLD’s historical past reminds us that such a launch isn’t routinely bearish.

Grayscale Bitcoin Belief

One more reason to query the contrarian response to those doable new bitcoin ETFs: Traders already are capable of spend money on bitcoin by way of the Grayscale Bitcoin Belief
GBTC,
-4.70%.
The belief, which presently has greater than $22 billion in belongings below administration, is the 800-pound gorilla on this area.

GBTC isn’t structured as an ETF, and so has no built-in mechanism to maintain its value from deviating considerably from its web asset worth. Nevertheless it’s not clear that this has dissuaded buyers from buying it. In the meantime, a Canadian-listed bitcoin ETF that started buying and selling in February, the Goal Bitcoin ETF
BTCC,
-5.55%,
has gathered US$773 million in belongings below administration to date.

Different concerns

Two different concerns to remember if a bitcoin ETF receives SEC approval. One is that ETF transactions are reported to the IRS, in contrast to many cryptocurrency transactions. According to the U.S. Treasury, underreporting of cryptocurrency transactions is widespread.

One other consideration is that, as an investor in one among these doable new ETFs, you need to belief that its managers have truly bought and securely saved the bitcoin that they declare to have purchased. I discussed this issue of trust in a recent column.

You is probably not apprehensive about this belief concern. However I convey it up nonetheless as a result of one of many foundational arguments made in favor of bitcoin and different cryptocurrencies is that the belief on which they rely is nameless and decentralized. Shopping for into one among these doable new bitcoin ETFs might go away you with out that basis.

Mark Hulbert is a daily contributor to MarketWatch. His Hulbert Scores tracks funding newsletters that pay a flat charge to be audited. He may be reached at [email protected]

Extra: What it might take to convert the largest bitcoin fund into an ETF

Plus: ‘You don’t have to be fully invested’ in the stock market today amid excess and speculation, says veteran investor Jim Stack

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